Archive for January, 2010

Take Steps to Minimize the Effect of an Economic Downturn

A survey conducted by American Express in August indicated that almost half of small business owners believed the current economic situation was negatively affecting their profits.

And nearly one in five of these business owners believed that they were at risk of going out of business because of the overall declining economic climate.

And this survey was conducted more than a month before the emotions surrounding the $700 billion “rescue plan” and before the severe Wall Street crash in October.

Professor Ed Hess of the Darden School of Business at the University of Virginia recently said, “Nothing is more stressful for a small business owner than talk of economic catastrophe. You start thinking about everything hanging in the balance, and if you aren’t careful you let your worries overwhelm your common sense. Rather than taking steps to safeguard your business, you find yourself paralyzed by anxiety.”

It is important for business owners to be very aware of all aspects of their business and the business environment they are operating in not only to survive but to see opportunities to get more out of the inevitable economic recovery going forward.

As a small business owner you are not only in a position to survive tough times, you are in a position to turn them to your advantage.

Small business owners have advantage over larger companies: the ability to quickly respond to changing economic conditions and to quickly change the way they are doing business from aspects such as marketing methods, introducing new products and services, modified pricing offers, team motivation and asking for their input and support and focused customer service of existing customers.

Will this be easy? No. Can the poor economy be used as a scapegoat for poor business performance? No. Will this require a positive attitude, a belief in yourself and the ability to avoid negative people? Yes. Will this be hard work and require extra hours at the office? Yes. Will this require new creativity in how you run your business? Yes. Will you need to turn to others who have different experiences than you have in running businesses? Yes.

During difficult economic conditions, and particularly with tight credit conditions, cash flow becomes even more critical to grow a business or, at a minimum, to maintain a business’s performance and be positively positioned when the recovery begins. And cashflow is primarily driven by profitability; however, it is important to understand that profit is not something that you can just get more of.

What you can do is influence what the profit line will be by focusing on and improving the five variables that contribute towards the profitability of the business. And these five variables apply to every business, of every size, and in every category of industry whether it is a manufacturing business, a retail business or a service business.

According to ActionCOACH founder and CEO Brad Sugars, there are five variables that generate profit. This process of increasing profits is called “the five ways.”

It is important to understand that Profitability can be impacted by improving the performance of any one or all of the five variables: Leads, Conversion Rate, Number of Transactions, Average $ Sale per transaction, Expense Margin. The Number of Customers, Total Revenue and Profitability are only outcomes of the five variables.

Therefore, it requires focusing on the ‘5 ways to increase your profitability in tough economic times’ as the actionable drivers to change profitability rather than the non-actionable statement, “I want more profits.”

As a starting point to improve the performance of the five variables, you must know what your current performance is for each variable. If you don’t know your current performance level, you will not know what might lead to improved profitability and where to put continuing operating emphasis as you go forward.

The following are some tactics to improve your five variables immediately. Will all of these examples apply to your business? Not necessarily, but they are common sense ideas and not rocket science. Specifically develop five tactics for each variable that you know will apply to your business and focus on making immediate changes to your business and measure the results versus your current performance.

Intently examine ALL your current costs including Cost of Goods/Sales and your Fixed Costs and determine what is not absolutely necessarily or can be realistically reduced at this time.

Develop a detailed annualized Profit & Loss, Balance Sheet and Cashflow budget for your business and update it every month with a reforecast of the annualized period that takes into account all updated anticipated changes. This will allow you to have a “best knowledge” of what you expect your business to look like in the annualized period – this monthly updated review may seem to be difficult to predict but it is necessary to control your business versus just “hoping.”

Classify or grade your customers into A, B, C or D based on criteria that are important to your business – and then do business only with the A and B customers. C and D customers may add revenue but financial analysis consistently shows that C and D customers don’t increase profits and tend to have higher costs of operating and in effect are probably operating at a loss. Service A Grade customers and sack the C & D graders.

As an example of how this Profitability Model can impact your business: If you focus on making changes in each of the five variables with a goal of improving the performance by 5 percent in each variable, this would increase your number of Customers by 10.25 percent and your Profit by 27.5 percent!

There are more than 25.5 small businesses in the U.S. employing more than half the American work force. It’s imperative in tough economic times that every one of these businesses dedicates their performance to surviving and improving profitability; this Profitability Model will help them down this path.

This article was written by one of my coaching peers and I felt the value in it was significant.

10 Ways to Maximize the Sales Value of Your Business

Business owners often ask me what they must do to maximize the sale value of their business. It is not simply the bottom line that determines the sale price.

The most common issue is that the business simply will not operate effectively without the business owner and, when this happens, the business is worth very little, no matter how good the bottom line.

So you must think like a buyer and focus you on those areas that will create additional value and make you redundant from your own business in order to maximize your sale price.

For many the following are key strategic areas to consider:

Customer Diversity – If a large part of your business relies on a small number of customers, it can be a negative. So start focusing on diversification.

Management and staff – Ensure your business has a clear goal and that your team both understands it and their role in delivering it. If you have a great team in place, make sure they stay on during the transition process.

Systemization – A buyer will have a greater value and desire for getting into a business where the processes are streamlined and systems are in place. Make sure you have a written system for all those business activities that are repetitive so they can be done consistently and quickly by anyone. No one person is vital to the successful running of the business – least of all you – the business owner.

Recurring Revenue – All revenue is not the same. If you have recurring revenue as a result of a contract or agreement like annual licensing fees, maintenance fees, etc. – these are much more commanding drivers of value than revenue pounds that result from projected sales or other such non-recurring revenue streams.

Desirable Proprietary Products/Technology that cannot be copied easily – A buyer will tend to value a business with unique products, services or systems higher than one that is considered as a “me too” business. So, find out what is unique about your business, and then think of ways in which your product/service is unique. Communicate this uniqueness effectively and you will be able to increase the desirability of your business.

Team of professionals – Using professionals like accountants and lawyers will help reduce the buyer’s perceived risk. It is essential to get your financials audited by a reputable accounting firm and use a good solicitor to go through the papers.

Key Performance Indicators (KPIs) – Make sure that you have a clearly defined and meaningful set of KPIs that not only show how the business is currently performing but also help demonstrate how it performed over the past year – this will demonstrate clear trends.

Written Growth Plan – A 2-3 page long written, strategic growth plan that identifies and lists the areas your company is expected to grow in can help maximize its value.

Book Keeping – Your style of book-keeping will greatly influence the buyer as this is an indicator of how your business was run in the past. A good quality book-keeping system also reduces the risk and helps during the due diligence stage.

During my own coaching session with clients, I use the concept of a ‘business in a box’ – one place where everything required to run the business is set out so that anyone – a general manager or a new owner, can take this and run the business successfully from day one without the input of the owner.

By following the points above, you will be able to achieve just that. In this manner, you will be able to shorten the sales cycle and maximize value.

Promotion Specialists and Advertising Solutions

215 Williams St., Fayetteville, NC 28301

ASI#276255 Jean@MooreExposure.com

Month-to-date, we are up in sales and in gross profit. Considering that we had no phones or Internet for three days during the move, I could not be any happier.

The contact sheets went over great. Priscilla went crazy and called everyone she has worked with in recent history and got lots of new quote requests and several orders. Now Sharlae wants to follow her lead.

Maybe you have already worked your magic?????

We are having a sales meeting on Friday. I have hired a college student to come greet customers and answer the phones so we can meet uninterrupted. I am going to tell my team about the Christmas bonus we will give if they hit the annual sales goal you and I set.

I am also going to kick off the 10-spot reward. For this first time, I plan to give everyone a 10-spot for something they have done well recently. Lord knows they all deserve it after what we have been through.

My side of the house is fascinated with the coaching thing. They ask lots of questions about what you and I are doing, and they seem to have really bought into making positive changes so that Moore Exposure can continue to grow.

Thanks for everything. I look forward to our next meeting and what we can achieve over the next few months.

Sharon Tolar Eaton

Tolar Agency Inc.

2823 Raeford Road

Fayetteville, NC 28303

910-323-4613

November 3, 2009

Dear Coach Ed,

We started coaching in April 2009. Through our efforts, in that short period of time, my business is poised to receive one of our largest bonuses ever for production and retention. With your guidance we have developed our goals, plans, systems, TEAM and profits.

You have made sure we set goals and that we plan for success. We focus on business building activities. You have been a great friend and confidant. Sometimes you aren’t very NICE, but you always have my best interest in mind. I have appreciated your confidence in me and that you have helped me grow in my business. As you know my father started this agency in 1974 and I have owned it for 5 years, since 2005. We look forward to growing it to new levels. Your assistance and attention have been PRICELESS. You keep me going forward and staying focused on the task at hand.

Thanks Coach. Thanks for helping me know I can realize my dreams. Thanks for showing us how we can succeed in tough economic times. I look forward to 2010 and beyond.

I just wanted to take a few moments to say Thank you. I am so grateful that I met you. You have not only shown me the importance of setting specific goals, but how to achieve them. Through your various workshops, seminars, profit club, and one on one coaching, you have helped me begin to pave a road to success. Your coaching expects a lot of me, but its fun and I enjoy seeing the growth I have made professionally and personally. Your coaching has helped on many tasks. To name a few: financials, day to day operations, expectations of employees, test and measuring results, writing ads that work, and my favorite… celebrating my accomplishments, big and small. I look forward to working with you for many years. With your coaching, our 25 year old family business will keep flourishing. I cannot emphasize enough to business owners that the best investment a business can make, is to invest in itself with a business coach. Action Coach Ed, you are awesome. Thanks so much !!!

Lead generation is marketing. It is also the most expensive of the 5 steps to grow your profits. But we need to maintain a lead generation strategy(ies). What are yours, how many do you have (at least 10 per week?) and how are they working for you?

Ok Gang, you’ll need to open this so you can see the contents in their appropriate formats. I’m sharing the way I coach clients. You can do this! If you want help just let me know. Best wishes. Ed

5 WAYS TO BUILD YOUR BUSINESS.

To build yourself a bigger or better business there are only FIVE areas of Marketing and Sales that you should be concerned with …

At ActionCOACH we call them the “5 Ways”, and massive results are possible by achieving only small improvements in each of these areas;

Number of Leads – how many potential clients do you attract?

Conversion Rate – how many leads do you convert into clients?

Average $ Sale – how much do they spend each time they buy?

No of Transactions – how many times a year do your clients buy?

Margins – what is the gross or net margin your business achieves?

This simple but effective system of evaluating your business in terms of marketing and sales efficiency allows us to benchmark where we are right now, select strategies and tactics from the ActionCOACH resources – strategies that have worked with thousands of businesses just like yours all over the world ….

Once you have selected the strategies for your business, we will work on implementing them together and Testing and Measuring the results. Our objective will be to reduce acquisition costs and increase lifetime values of you’re “A” grade clients to your business.

ActionCOACH

5 Ways to Increase Your Business………

The table below gives the figures for a client of mine, by improving each of the five ways by only 10% – you can see what the effect is on the Turnover and Profit …..

Current 10% Increase

1370

Lead Generation

X

42%

Conversion Rate

=

575

Number of Customers

X

4

Number of Transactions

X

$780

Average Sale

=

$1,794,000

Sales

X

25%

Margins

=

$448,500

Profits

I’ve completed the figures for you to check on the next page …

ActionCOACH

5 Ways to Increase Your Business………

Now you can see the power that small improvements in each of the 5 Ways will deliver to your business….

Current 10% Increase

1507

1370

Lead Generation

X

42%

46.2%

Conversion Rate

=

575

696

Number of Customers

X

4

4.4

Number of Transactions

X

$780

$858

Average Sale

=

$1,794,000

27.5%

Turnover

X

$2,627,539

25%

Margins

=

$448,500

$722,257

Profits

That’s a massive 46% increase in Sales and a 61% increase in Profits……

Can a business increase sales 10%, keep expenses constant and still see a 61% increase in profits?

It can if it looks at increasing the bottom-line the ActionCOACH way.

Conventional business looks at sales from the standpoint of three variables, namely sales, expenses and profits defined by the formula: Sales – Expenses = Profits.

In this approach, each variable depends on the other, forcing businesses to look at either increasing sales or decreasing expenses in order to influence profitability.

ActionCOACH moves away from this narrow view and breaks the sales variable into five separate components. These variables can be worked individually and across the board to leverage profits on the bottom line.

In the ActionCOACH business coaching model, this is termed “The Five Ways.”

According to the “Five Ways,” all business is driven by five key profit generating areas: Lead Generation, Conversion Rate, Average Dollar Sale, Average Number of Transactions and Profit Margins. These areas are highlighted in the following equation:

Lead Generation x Conversion Rate = Number of Customers

Number of Customers x Average Dollar Sale x Average Number of Transactions = Revenues

Revenues x Profit Margins = $ Profits

A closer look at each of these five variables reveals how an increase in any or all of them can increase sales and profits, while keeping expenses constant.

Understanding Lead Generation, Conversion Rates and Average Dollar Amounts

In today’s highly competitive business world, it is not possible for business owners to sit back and see the profits roll in. It becomes vital for businesses to test and measure everything. A good place to start is lead generation. This is defined as the total number of potential buyers that a particular business contacted or that contacted the business last year. Leads are also known as “potentials” or “prospects.”

Most people confuse responses, or the number of potential buyers, with results. The sound of ringing phones does not mean that the cash registers are ringing as well. This is highlighted by conversion rate, or the percentage of people that did buy versus those who could have bought. An example of this is 10 people walking through a store with three people buying something. For the day, the store had a conversion rate of 3 out of 10, or 30%.

The next part of the “Five Ways” is the number of customers. This is the number of different customers a business deals with, and it can be determined by multiplying the total number of leads by its conversion rate.

Average number of transactions is the number of purchases the average customer will make over the course of a year. It helps to keep a database of past customers, and many business owners make the mistake of subscribing to the myth of “once a customer, always a customer.” The average number of transactions is closely related to the average sale of each purchase, which is also forecast over the course of a year.

Discovering Revenues and Working on Margins

The next important concept in the model is revenue, which is computed by multiplying the total number of customers by the number of times that they bought, multiplied by the average amount they spent.

The resulting number is “revenue,” or the total amount value of overall sales for a business.

This figure leads to the concept of margin, which is the profit percentage of each and every sale. Simply put, if a business sells something for $100, and $25 was profit, the profit margin is 25%.

The final step takes the resulting revenue number and multiplies it by a company’s profit margin percentage to reach bottom-line profit.

The innovative idea around the “Five Ways” is that businesses can leverage the concept even if they have a product or service with a long-term buying cycle or a limited number of transactions.

In those cases, a business could work with the other variables to improve bottom-line profit, including boosting its marketing efforts to capture more qualified leads, finding ways to increase conversion to customers, raising prices to leverage average amount sale or upgrading profit margins.

By stepping outside the conventional accounting perspective of profit, and recognizing that a number of additional variables drive the bottom-line – ActionCOACH gives owners a new perspective on business, and equips them with the tools that positively impact each variable of the equation.